Last week, China devalued its currency. This week, the stock market started to fall. Yesterday, the markets closed anywhere from -2.06% to -2.82%, and today, the fall continues. Today’s closing bell has them down an additional -3/12% to -3.49%. And the worst part is, there is absolutely nothing you can do to stop it. You have no control over the stock market’s performance.
The market needed a correction—it has been growing at a ridiculous rate for far too long. So this shouldn’t come as a huge surprise. Savvy investors know when the market is overvalued, but the correction still seems to catch everyone off guard. It is just absolutely impossible (and foolish) to predict the market. And when it starts to drop, your hands are tied. You don’t have options.
And who knows when it will stop? Ask 5 investing “experts,” and you will get at least 5 different answers.
What is much easier to anticipate are real estate returns. You have much more control over how the story ends.
If you’re buying property to rent out, you control who lives there. You either choose them yourself, or you delegate that decision making to someone you trust. If that person doesn’t perform, you can choose to remove them and get another person in there. Your hands aren’t tied. And if renting doesn’t work out for you, you can choose to sell the property. You have options.
If you are purchasing property to fix and flip, you control who does the work, what finishes are installed, and the timeline for the project, for the most part. And if the market changes during the course of your rehab, you can choose to rent it out until the market corrects itself. Your hands aren’t tied. You have options.
Real estate is an excellent way to diversify your portfolio for several reasons:
How to Purchase Real Estate With No (or Low) Money!
One of the biggest struggles that many new investors have is in coming up with the money to purchase their first real estate properties. Well, BiggerPockets can help with that too. The Book on Investing in Real Estate with No (and Low) Money Down can give you the tools you need to get started in real estate, even if you don’t have tons of cash lying around.
5 Ways Real Estate Wins Big Where Stocks Fall Short
People will always need a place to live.
There will always be a strong demand for rental properties, whether temporary or long-term, provided you choose the right area. Not everyone has the desire or the means to own their own property. Since the 2008 crash—caused in large part by shady lending practices—loan requirements have tightened considerably. It’s a lot more difficult to get a loan, and not everyone can qualify through the new, stricter rules, even if they can afford the monthly payments.
Rental property provides great cash flow.
Owning $200,000 in Apple stock will give you an annual dividend of around $3,400. If you abide by the 1% rule (and you should), owning a $200,000 rental property will give you $24,000 of income annually. Also, will Apple still be around in 20 years? Maybe, but I’ll bet your rental still will be.
Real estate is less volatile.
Real estate has its ups and downs, just like everything else. But almost every local market, over time, trends up. Historically, the 2008 crash was an anomaly because it was caused by real estate itself.
Yes, there will always be pockets of land that don’t follow the trend—Detroit immediately comes to mind. Detroit has been steadily losing population since its 1960s heyday. Property values cannot go up when population goes down, and Detroit is down by more than half. However…
The population is growing, but the earth isn’t.
As more and more people inhabit this planet, land will become more and more precious. Granted, this isn’t a huge dilemma currently—the world has many places where you can go miles without seeing another human or anything remotely related to civilization. But the most popular areas will continue to grow, and land is becoming more and more precious in many parts of the world.
If you’re a property investor in the United States, you have an extra advantage. Lots of folks from around the world see value in owning American property. It isn’t unusual for Canadians, Chinese or Middle Easterners to buy property here in the states. They realize that the stability and strong American economy makes it a great place to invest.
If you have a Margin Account, you can use leverage to buy your stocks. But the most you can borrow is 50% of the stock purchase price. Not every stock is marginable, either.
Real estate is up to 100% leveragable, using a mortgage to purchase your property. One hundred percent financing is usually available for owner-occupants—investments are more typically 75%-80% financed—but a far larger percentage of the purchase price can be financed than with stocks and other investments.
Real estate is a solid way to invest in your future and your retirement. A diversified portfolio can help guard against losses when one another asset class loses value. Unlike other investments, real estate can return money over the lifespan of the asset. It’s kind of a no-brainer.
Why do YOU love to invest in real estate? (And if you don’t, what’s your investment of choice—and why?)
Don’t forget to leave a comment below.